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Why Intersect ENT Is Getting Mauled Today

By Brian Feroldi – May 7, 2019 at 11:14AM

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Shares fall hard after the company reports rough first-quarter results and announces a leadership transition.

What happened

Shares of Intersect ENT (XENT), a medical device company focused on products that treat ear, nose, and throat problems, had dropped 22% as of 10:35 a.m. EST on Tuesday. The huge decline is attributable to mixed quarterly results, a guidance cut, and a leadership change in the corner office.

So what

Let's start with the headline numbers from the second quarter:

  • Revenue jumped 8% to $26.7 million. That was ahead of the $26.3 million that Wall Street had been expecting.
  • Gross margin increased by 500 basis points to 83%. 
  • Operating expenses grew 30% to $33.5 million. 
  • Net loss expanded 77% to $10.8 million, or $0.35 per share. That was worse than the $0.31 loss analysts were expecting.
  • Cash balance at quarter end was $98 million. 

The mixed quarterly results weren't great, but traders appear to be really taking issue with management's guidance revision:

  • Full-year revenue is now expected to land between $113 million and $117 million. That's down from its prior range of $123 million to $127 million.
  • 2019 operating expenses are still expected to land between $135 million and $137 million.

Finally, longtime CEO Lisa Earnhardt announced that she is leaving the company to take a position at Abbott Laboratories starting on June 5.

Female packing up to leave a job

Image source: Getty Images.

Add it all up, and it is no surprise to see the stock getting whacked today.

Now what

Intersect ENT is supposed to be in high-growth mode, so it is very disappointing to see that revenue is growing at only a single-digit rate. That's especially true given that the company is spending lavishly on its commercial team in an effort to ramp up sales. The big guidance cut also suggests that the situation won't turn itself around anytime soon. 

The news that CEO Lisa Earnhardt is choosing to step down to go work for an established medical device company is also very troubling. That suggests that she isn't all that bullish on the future potential of the business. 

Overall, I think this update should raise a lot of red flags for investors. For that reason, I do not consider this drop to be a buying opportunity. 

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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